May 18, 2012

A sign at New Middletown Tobacco advertises a sale on roll-your-own cigarettes. / Cara Matthews/TJN

Written by

Cara Matthews and Brian Tumulty

$6.64 per carton State excise and sales tax for a roll-your-own cigarette carton $46.43 per carton State taxes for a regular carton

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NANUET — Jim Petro spent about 15 minutes inside New Middletown Tobacco one recent evening, depositing pipe tobacco and tubes he bought into a $30,000 rolling machine and emerging with a carton’s worth of cigarettes.

The purchases and “rental” of the machine set him back $33. A carton of cigarettes would cost him more than $100, he said. New Middletown Tobacco is offering a special through May: 200 cigarettes for $30.99 plus tax.

“Two packs of cigarettes at that store equals a carton of cigarettes in this one,” said Petro, 45, pointing to a Gulf station convenience store across the street.

Petro is one of many New Yorkers who switched from name-brand to roll-your-own cigarettes to save money. There have been “sizable market shifts” in Americans’ smoking habits since federal taxes were raised in April 2009, a recent report from the Government Accountability Office found.

Three years ago, Congress boosted taxes on both roll-your-own tobacco and packs of cigarettes, making them equal. Since then, monthly sales of pipe tobacco and large cigars, which are taxed at a lower rate, have skyrocketed from about 240,000 pounds in January 2009 to more than 3 million pounds, the report said.

Excise tax on a pack of cigarettes was raised to $1.06 , with similar hikes on roll-your-own tobacco and small cigars. The excise tax on roll-your-own tobacco was set at $24.78 per pound, compared with $2.83 per pound for pipe tobacco. As a result, pipe tobacco is increasingly used for roll-your-own cigarettes in machines at neighborhood smoke shops nationwide.

The market shift cost the federal government an estimated $615 million to $1.1 billion in uncollected tax revenue between April 2009 and September 2011, the report said.

Roll-your-own machines are scattered across New York, including stores in Garnerville, Nanuet and Orangeburg. Ciggy’s 4 Less in New Rochelle recently closed.

A report released last month from the federal Centers for Disease Control and Prevention estimates New York lost $16.9 million in potential tobacco tax revenue from April 2009 to August 2011. Just three states lost more.

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There are efforts to shut these businesses in New York by classifying them as manufacturers, which have to pay higher taxes. State Attorney General Eric Schneiderman’s office and New York City filed a lawsuit against a store in Brooklyn and one on Staten Island that sell the supplies and rent the machines. The stores and others “are cheating the state out of millions of dollars per year,” he said at the time.

State lawmakers are considering a bill that would require stores with roll-your-own machines to register as cigarette manufacturers and pay the higher taxes and fees. Consumers pay about $6.64 in state excise and sales taxes per carton of roll-your-own cigarettes compared with $46.43 for a regular carton, the legislative sponsors say.

The American Cancer Society supports the legislation and the lawsuit, said Russ Sciandra, the group’s New York advocacy director. “By putting tobacco in machines, you have become a manufacturer, irregardless of who operates the machines,” he said.

A lot of people wouldn’t smoke cigarettes if they had to pay the higher tax, Sciandra said. “This is just one more way for people to avoid the tax, and just that many more people will smoke,” he said.

Phil Accordino, president of RYO Machine LLC in Girard, Ohio, said his company supplies rolling machines to about 20 locations in New York and fewer than 1,000 locations nationwide. The machines serve about 1.5 customers an hour nationwide, he said. They don’t attract new customers, but rather blue-collar workers, retirees and established smokers looking for a price break, he said.

“This is about the big tobacco companies using the federal government to legislate their competition out of the business,” he said. His company has hired Park Strategies, founded by former U.S. Sen. Alfonse D’Amato, R-N.Y., as its lobbyist.

Anti-smoking advocates say the tax loopholes are secondary to the more important and positive health news about decreasing tobacco use. Cigarette sales dropped about 11 percent in the 12 months after the higher rates took effect, the Campaign for Tobacco-Free Kids found.

Denise Hogan, POW’R Against Tobacco’s Rockland County Coalition coordinator, said she doesn’t think it’s common for county residents to smoke cigarettes rolled in smoke shops or that young people are picking up the habit this way.

“I haven’t heard of anyone going to these roll-your-own stores,” Hogan said. “People are very brand-loyal, so they tend to go to the same place and buy the same cigarettes, and very few differentiate from that.”